Crude Oil Rises as Storm Edouard Strengthens in Gulf of Mexico

By Gavin Evans and Catherine Yang

Aug. 4 (Bloomberg) -- Crude oil rose for a second day as a storm threatened U.S. output in the Gulf of Mexico, and Israeli and U.S. officials sought additional sanctions against Iran.

Tropical Storm Edouard lies about 90 miles (145 kilometers) southeast of the Mississippi River mouth and may strengthen to a hurricane as it heads west toward Texas, the National Hurricane Center said. Oil rose from an 11-week low last week as U.S. fuel stockpiles fell and Iran ignored a deadline in its dispute with the United Nations over its nuclear research.

``Those wildcat factors'' are holding up prices today, Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney, said in a Bloomberg Television interview. ``Prices should be a lot stronger than they were a week ago,'' given the risks from the storm and Iran, he said.

Crude oil for September delivery rose as much as $1.21, or 1 percent, to $126.31 a barrel in after-hours electronic trading on the New York Mercantile Exchange and traded at $125.93 at 9:15 a.m. in Singapore.

The contract gained 0.8 percent on Aug. 1 on speculation the odds of a military strike against nuclear research facilities in Iran, the world's fourth-largest oil producer, were increasing.

Iran didn't respond by an Aug. 2 deadline to an offer from the U.S., Russia, China, France, the U.K. and Germany of economic and diplomatic incentives in exchange for the suspension of its uranium-enrichment program.

Extra sanctions are needed, Tzipi Livni, Israel's foreign minister, said yesterday on CNN's ``Late Edition'' program.

Brent, Edouard

Brent crude oil for September settlement climbed as much as $1.12, or 0.9 percent, to $125.30 a barrel on London's ICE Futures Europe exchange, and traded at $125 at 9:09 a.m. in Singapore.

Tropical storm Edouard, with maximum wind speeds of 50 miles an hour, is likely to strengthen as it moves west parallel to the Louisiana coast before making land on the upper Texas coast Aug. 5, the Miami-based hurricane center said at 7 p.m. local time. There is a 24 percent chance it will strengthen to a hurricane, with winds of more than 74 miles an hour, before striking land.

``Keep a close eye on the storm,'' Rebecca Waddington, a meteorologist with the center, said in an interview. ``The industry knows better than we do how to safeguard their installations. I'd advise them to act early.''

New York oil futures have slipped more than $21 a barrel, or 14 percent, from the record $147.27 on July 11 as U.S. gasoline demand slowed, and a firming of the dollar reduced the attraction of commodities as an investment.

Speculators

Hedge fund managers and other large speculators last week reduced their bets on falling prices, according to Commodity Futures Trading Commission data.

Net-short positions, the difference between orders to buy and sell the commodity, fell to 660 contracts at July 29, 82 percent less than a week earlier.

While the U.S. economy may be heading toward recession, demand in India and China remains strong and global production is straining to keep up, Fat Prophets' Wendt said. He expects oil to reach $175 a barrel before the end of the year.

An Institute for Supply Management report tomorrow will probably show U.S. service industries shrank for a second month in July, based on a Bloomberg survey of economists. Futures trading on the Chicago Board of Trade suggests less than a 7 percent chance the U.S. Federal Reserve will raise interest rates after it meets the same day.

``It's likely that we're going to see further weakness in the dollar,'' Wendt said. ``We can't see it bouncing back and sustaining any gains so we're looking towards further increases in the price of crude oil.''

To contact the reporters on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net; Catherine Yang in Hong Kong at cyyang@bloomberg.net

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China Cosco May Join Hang Seng, Yue Yuen to Leave

By Hanny Wan

Aug. 4 (Bloomberg) -- China Cosco Holdings Co., the world's largest operator of iron-ore and coal ships, may join Hong Kong's Hang Seng Index and sports-shoe maker Yue Yuen Industrial (Holdings) Ltd. may be removed as part of a quarterly review, according to Nomura Holdings Inc.

China Cosco, based in Tianjin in northeastern China, would become the 11th company from the mainland to be included in the Hang Seng Index. Hong Kong-Based Yue Yuen may be dropped because it has the lowest trading level of any stock in the gauge in the past eight quarters, according to Nomura, Japan's largest brokerage, and Fulbright Securities Ltd.

Adding China Cosco would ``reflect the trend that an increasing number of large companies tend to be from mainland China,'' said Francis Lun, general manager at Fulbright, a Hong Kong-based brokerage.

Mainland companies that trade in Hong Kong, known as H shares, made up 25 percent of the value traded on the Hong Kong stock exchange's main board at the end of June, up from 1.5 percent at the end of 1997. The city's $2.12 trillion stock market is Asia's third-biggest after Japan and China.

HSI Services Inc., which compiles the benchmark indexes, said in February 2007 that it plans to expand the Hang Seng Index to 50 companies from 43. The changes, based on criteria such as market capitalization and trading volume, may prompt funds that buy shares based on the index to adjust their holdings. HSI Services will announce the changes on Aug. 8.

China Cosco Declines

Shares of China Cosco fell 15 percent this year, less than the 18 percent decline in the Hang Seng Index.

About 31 million of the company's shares traded daily this year, up from 25.8 million in the same period a year earlier. It ranks 59th among all the companies listed on Hong Kong's exchange by average market value, Sandy Lee, a quantitative analyst at Nomura in Hong Kong, wrote in a research note dated July 29.

Yue Yuen slumped 27 percent this year. Castor Pang, an analyst at Sun Hung Kai Securities in Hong Kong, said Yue Yuen may be kept on the Hang Seng index.

``There's no urgency in deleting Yue Yuen, given that the goal is to increase the membership to 50,'' Pang said.

China Railway Construction Corp., based in Beijing, may join the Hang Seng China Enterprises Index, which tracks H shares, while Shenzhen, China-based Guangshen Railway Co. may be removed, according to the Nomura report.

China Railway, builder of more than half the nation's railroads, climbed 14 percent since its March initial offering was priced at HK$10.70 ($1.37) a share. Guangshen Railway, the operator of trains in China's richest province, plunged 31 percent this year.

To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net



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Asian Stocks Fall for a Second Day; Nissan, BHP Billiton Drop

By Chen Shiyin and Chua Kong Ho

Aug. 4 (Bloomberg) -- Asian stocks fell for a second day, led by automakers and raw-material producers, after Nissan Motor Co. posted a 43 percent drop in profit and metal prices declined.

Nissan, the Japan's third-largest automaker, fell the most in four months and Toyota Motor Corp., the largest, fell to the lowest in almost three years. BHP Billiton Ltd., the world's biggest mining company, dropped after a gauge of metals fell the most in more than a week. Daewoo Shipbuilding & Marine Engineering Co. led shipbuilders lower in Seoul after it canceled an order as the client failed to make payments.

``We expect corporate earnings to stay weak for the rest of 2008 in Asia,'' said Diane Lin, Sydney-based portfolio manager at Pengana Capital, which oversees about $1.9 billion. Exporters that are ``exposed to the overseas markets, such as Japanese and Korean automakers, will see a challenging second half.''

The MSCI Asia-Pacific Index lost 1.2 percent to 129.07 as of 10:54 a.m. in Tokyo, adding to its 1.3 percent decline on Aug. 1. More than two stocks retreated for each that gained.

Japan's Nikkei 225 Stock Average declined 1.3 percent to 12,927.47, poised for its lowest close since July 18. South Korea's Kospi index fell 2.4 percent, Asia's biggest retreat.

Yamaha Corp. posted the biggest drop on the MSCI Asian index after Goldman Sachs Group Inc. cut its rating on the Japanese musical-instrument maker. Lend Lease Corp. fell in Sydney after the developer reported lower profit.

U.S. Stocks Drop

U.S. stocks fell on Aug. 1, adding to two months of losses for the Standard & Poor's 500 Index, after the Labor Department said the jobless rate climbed to 5.7 percent in July. General Motors Corp., the No. 1 U.S. carmaker, declined the most since June after posting the third-biggest quarterly loss in its 100- year history on plunging domestic sales.

GM's $15.5 billion loss was four times more than analysts estimated after the value of truck leases declined. It coincided with a report showing that U.S. auto sales tumbled 13 percent in July, pushing the industry to its lowest annualized selling rate since April 1992.

Nissan lost 5 percent to 787 yen, set for the lowest close since March 13. Toyota dropped 2.2 percent to 4,510 yen, on course for its lowest close since September 2005.

Nissan's net income dropped to 52.8 billion yen ($491 million) for the three months ended June as it wrote down the value of leased vehicles, the automaker said on Aug. 1. UBS AG, Merrill Lynch & Co. and Credit Suisse Securities (Japan) Ltd. cut their share-price forecasts.

Metal Prices

Metal prices fell on Aug. 1, partly on speculation that demand for the auto industry will drop. Platinum declined the most in four months in New York, while copper fell the most in three weeks.

BHP dropped 2.1 percent to $38.30. Rio Tinto Group, the world's third-largest mining company, slipped 1.7 percent to A$118.55. Sumitomo Metal Mining Co., Japan's biggest nickel producer, dropped 5 percent to 1,324 yen.

Daewoo Shipbuilding, the world's third-largest shipbuilder, plunged 11 percent to 36,550 won, set for the largest decline since Jan. 30. It canceled an order valued at 619 billion won ($609 million) for eight container vessels from an unidentified buyer, the company said on Aug. 1.

Hyundai Mipo Dockyard Co., a unit of the world's largest shipbuilder, lost 6.6 percent to 184,500 won. The company also scrapped a 197 billion won contract after an unidentified European customer failed to make an initial payment. Hyundai Heavy Industries Co., its parent, lost 8.8 percent to 280,500 won.

Yamaha Slumps

Yamaha slumped 13 percent to 1,800 yen after Goldman Sachs cut its rating for the company to ``sell'' from ``neutral,'' citing the outlook for earnings. Yamaha cut its profit forecast for the year ending March 2009 on Aug. 1, sending the shares 7.4 percent lower.

Lend Lease, the Sydney-based developer building London's 2012 Olympic Village, dropped 11 percent to A$8.94 after saying net income declined 47 percent as it wrote down U.K. assets for the third-straight year and global property values fell. The shares were on course for their largest loss since December 2000.

To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Chua Kong Ho in Shanghai at kchua6@bloomberg.net



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Japan Stocks Slip a Second Day on Nissan Profit, U.S. Car Sales

By Patrick Rial

Aug. 4 (Bloomberg) -- Japan stocks fell a second day, led by carmakers, after Nissan Motor Co.'s profit fell by two fifths and U.S. auto sales fell to the lowest annual rate in 16 years.

Nissan, Japan's third-largest automaker, sank to a five-year low after net income sank due to a writedown on leased vehicles and a stronger yen, and as U.S. auto sales dropped to the lowest since 1992. Smaller rival Mazda Motor Corp. plunged the most in six years. Canon Inc., which gets more than a quarter of its revenue in the Americas, declined to the lowest since April after the U.S. jobless rate rose to the highest level in four years.

``The U.S. auto figures were extremely poor, and I expect the gradual deterioration of the U.S. economy to continue until the beginning of next year,'' said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which manages about $94 billion.

The Nikkei 225 Stock Average slumped 169.34, or 1.3 percent, to 12,925.25 as of 10:43 a.m. in Tokyo. The broader Topix index fell 19.91, or 1.6 percent, to 1,253.02. Four stocks fell for each that advanced on the Topix.

Nissan slumped 4.8 percent to 788 yen, the lowest level since March 2003. The company said on Aug. 1 net income dropped 43 percent to 52.8 billion yen ($492 million) in the first quarter. Three brokerages cut their price targets on the company.

Toyota Motor Corp., the world's largest automaker by value, slumped 3.3 percent to 4,460 yen, the lowest since August 2005. Honda Motor Co., which gets more than half its sales in North America, tumbled 4.3 percent to 3,330 yen, a seventh day of declines. Toyota reported a 12 percent slide in U.S. sales for July on Aug. 2, while Honda's dipped 1.6 percent.

`Shocking' Auto Sales

Mazda Motor Corp. a third owned by Ford Motor Co., plunged 8.9 percent to 551 yen, the steepest slide in more than six years, after July U.S. sales dropped 13 percent, the biggest decline among Japanese automakers.

The sales figures were ``shocking,'' even in comparison with the conservative forecasts Nomura Holdings Inc. had been making, Shinya Naruse, an analyst at the brokerage, wrote in a note today.

Olympus Corp., the world's biggest maker of endoscopes, slumped 6 percent to 3,280 yen after the company's profit declined amid slumping prices for digital cameras. JPMorgan Chase & Co. cut its rating on the stock to ``underweight'' from ``neutral.''

``With profit down by about a 10th across the board, it's not as bad as I had feared,'' Tomochika Kitaoka, a Tokyo-based strategist at Mizuho Securities Co., said in an interview with Bloomberg Television. ``But in this market when you show a drop in earnings, it brings the sellers out almost automatically.''

U.S. Unemployment

Canon lost 2 percent to 4,810 yen. Sony Corp., the maker of the PlayStation 3 game console, slipped 1.7 percent to 4,030 yen.

U.S. unemployment rose to 5.7 percent in July from 5.5 percent the prior month. As recently as April, it was 5 percent. A separate report showed that U.S. manufacturing stagnated in July as companies were hit by rising raw-materials costs and slower spending.

Nippon Telegraph & Telephone Corp., the nation's largest telephone company, jumped 2.5 percent to 573,000 yen, the highest since May 31, 2007, after the Nikkei newspaper said on Aug. 2 the company may report a first quarter operating profit of as much as 400 billion yen, boosted by a 45 percent jump in profit at its mobile phone subsidiary NTT DoCoMo Inc.

Nikkei futures expiring in September lost 0.8 percent to 12,920 in Osaka and fell 1.2 percent to 12,920 in Singapore.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

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Australia to Leave Benchmark Rate at 7.25% as Job Growth Slows

By Jacob Greber

Aug. 4 (Bloomberg) -- Australia's central bank will probably leave its benchmark interest rate at a 12-year high amid signs rising unemployment will cool inflation that has surged above its target range.

Governor Glenn Stevens will keep the overnight cash rate target at 7.25 percent tomorrow in Sydney, according to all 24 economists surveyed by Bloomberg News. A separate survey shows employment growth probably slowed to 5,000 extra jobs in July from 29,800 in June.

Slower jobs growth adds to signs four interest-rate increases in 12 months are cooling Australia's $1 trillion economy. Record gasoline prices and declining stock values also are prompting consumers and companies to slash spending, offsetting a surge in income from iron ore and coal exports.

``Reserve Bank policy makers aren't ready to cut yet, but when they do, it's likely to be 50 basis points,'' said Rory Robertson, an economist at Macquarie Group Ltd. in Sydney. ``The economy is seriously slowing.''

The Reserve Bank of Australia will announce its decision at 2:30 p.m. tomorrow in Sydney.

Policy makers have left borrowing costs unchanged since March, when they raised the benchmark rate for a second straight month to curb inflation.

Consumer prices jumped 4.5 percent in the second quarter from a year earlier as gasoline costs rose, a report showed last month. The central bank aims to keep annual inflation between 2 percent and 3 percent on average.

Consumer Confidence

Stevens said last month that the chances of keeping inflation ``low over the medium term are good.'' There is ``pretty clear evidence'' consumers and businesses are cutting expenditure, the governor said on July 16.

Since the bank's last meeting on July 1, reports show consumer confidence slumped in July to the lowest level in 16 years, retail sales fell in June by the most in six years, and lending to consumers and businesses rose at the slowest annual pace since 2002.

Home-loan approvals, which fell 7.9 percent in May, the most in eight years, probably dropped 2 percent in June, according to the median estimate of 21 economists surveyed by Bloomberg News. The government publishes its home-loan report at 11:30 a.m. on Aug. 6 in Sydney.

Rate Outlook

``It looks more likely now than it did a couple of months ago that this more moderate track for demand will continue,'' Stevens said on July 16. That will ``in due course begin to exert downward'' pressure on inflation, he said.

Investors have increased bets that the central bank will cut interest rates, according to a Credit Suisse Group index based on trading in interest-rate swaps.

Stevens will lower the benchmark rate by 70 basis points, or 0.70 percentage point, in the next 12 months, the index showed at 3:20 p.m. in Sydney on Aug. 1. At the start of July, traders forecast 19 basis points of gains.

The Reserve Bank may cut its benchmark by as much as 3 percentage points by the end of 2009, said Stephen Koukoulas, a senior economist at TD Securities Ltd. in London.

``The collapse in the domestic economy appears to have gained breadth and momentum in recent months,'' Koukoulas said.

Job Losses

Qantas Airways Ltd., Australia's largest airline, said last month it will sack 1,500 workers, and meat processing company Don Smallgoods will cut 640 at factories in Perth and Melbourne.

Starbucks Corp., the world's largest chain of coffee shops, said July 29 it will close three-quarters of its 84 Australian stores, part of a plan to cut at least 12,000 jobs globally.

The jobless rate, which fell to a 34-year low of 3.9 percent in February, probably rose to 4.3 percent last month from 4.2 percent in June, according to the median estimate of 24 economists surveyed by Bloomberg News.

The government will publish the jobs report at 11:30 a.m. in Sydney on Aug. 7.

``The risk of recession is now very high,'' said Shane Oliver, senior economist at AMP Capital Investors in Sydney. ``The Reserve Bank should be cutting rates.''

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net



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South Korea's Foreign Currency Reserves Fall to $247.52 Billion

By William Sim

Aug. 4 (Bloomberg) -- South Korea's foreign-exchange reserves declined for a fourth month in July because of a stronger dollar and the central bank's intervention in the currency market.

The nation's reserves dropped to $247.52 billion last month from $258.1 billion in June, the Bank of Korea said in a statement released in Seoul today. A stronger U.S. currency decreased the value of assets in euros and other currencies when converted into dollars, the bank said.

The won jumped 3.4 percent last month, the biggest monthly gain since January 2006, as the central bank bought the local currency with its dollar reserves to help reduce imports costs and tame inflation, which accelerated to the fastest in almost a decade in July.

South Korea ranks sixth after China, Japan, Russia, India and Taiwan among the world's largest holders of foreign exchange, according to central bank data.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net



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N.Z. Dollar Trades Near 10-Month Low on Outlook for Economy

By Tracy Withers

Aug. 4 (Bloomberg) -- The New Zealand dollar traded near a 10-month low on speculation the nation's yield advantage will diminish as the outlook for slowing economic growth prompts more interest-rate cuts.

The local dollar is the worst-performer among the 16 most- traded currencies in the past three months, slumping 6.6 percent against the U.S. dollar. It reached its lowest in more than 10 months on Aug. 1 as traders increased bets that Reserve Bank of New Zealand Governor Alan Bollard will cut borrowing costs by as much as half a percentage point next month.

``Things are looking increasingly dreary and this has taken a toll on the New Zealand dollar,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``Not only is the New Zealand economy teetering on the brink of recession, but the Reserve Bank is expected to cut interest rates significantly over the coming months.''

New Zealand's currency bought 72.87 U.S. cents at 9:56 a.m. in Wellington from 72.73 cents in late New York trading Aug. 1, when it fell as low as 72.47 cents. It bought 78.47 yen from 78.32 yen.

The currency fell last week after a survey showed a net 8.2 percent of firms expect sales will fall over the next year, adding to signs the economy has stalled. The fifth straight month of pessimism was the worst in the ANZ National Bank Ltd. survey's 20-year history.

Last month, Bollard cut the official cash rate a quarter- point to 8 percent, the first reduction in five years, saying the slowing economy will ease inflation.

`Slow Further'

``There is a risk that the domestic economy will slow further,'' he said in a July 24 statement. Weak growth will curb inflation over the next two years, he said.

The economy contracted 0.3 percent in the first quarter and 9 of 13 economists surveyed by Bloomberg News estimate it also shrank in the three months ended June 30, putting the nation in its first recession since 1998.

The deteriorating outlook for the economy has increased expectations of future rate reductions. The chance of a quarter- point cut at the next review is 128 percent, according to an index calculated by Credit Suisse Group based on swaps trading. A separate index shows the market expects 1.5 percentage points of rate cuts over the next year.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net



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Japan's Yen, Chinese Yuan, Ringgit, Won: Asia Currency Preview

By Anoop Agrawal

Aug. 4 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today.

Exchange rates are from the previous session.

Japanese yen: Vice Finance Minister Kazuyuki Sugimoto is scheduled to speak to reporters at 5 p.m. in Tokyo.

The yen was at 107.61 a dollar at 7:06 a.m. in Tokyo.

Malaysian ringgit: The trade surplus in June decreased to 13.7 billion ringgit from 15.6 billion ringgit in May, economists said in a Bloomberg News survey before a government report at 12:01 p.m. in Kuala Lumpur.

The ringgit was at 3.2635.

South Korean won: Crude oil imports dropped for a sixth month as high energy prices curbed demand and threatened to slow growth. Oil imports dropped to 69.6 million barrels in July from 72.8 million barrels a year ago, the government said on Aug. 1.

The won was at 1,014.60.

Indonesian rupiah: Exports in June rose 35 percent to $12.9 billion from a year ago, the government said Aug. 1. Inflation accelerated to 11.9 percent in July from a year earlier, the fastest in 22 months, another report showed the same day.

The rupiah was at 9,096.

Taiwan dollar: Consumer prices rose 5.6 percent in July from a year earlier, compared with a 4.97 percent gain the previous month, economists said in a Bloomberg survey. The government will report the data tomorrow.

The Taiwan dollar was at NT$30.645.

Thai baht: Foreign-exchange reserves fell 1.2 percent to $105.1 billion in the week ended July 25, from $106.4 billion a week earlier, the central bank said on Aug. 1.

The baht traded at 33.53.

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.



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China Cosco May Join Hang Seng, Yue Yuen to Leave, Nomura Says

By Hanny Wan

Aug. 4 (Bloomberg) -- China Cosco Holdings Co., the world's largest operator of iron-ore and coal ships, may join Hong Kong's Hang Seng Index and sports-shoe maker Yue Yuen Industrial (Holdings) Ltd. may be removed as part of a quarterly review, according to Nomura Holdings Inc.

China Cosco, based in Tianjin in northeastern China, would become the 11th company from the mainland to be included in the Hang Seng Index. Hong Kong-Based Yue Yuen may be dropped because it has the lowest trading level of any stock in the gauge, according to Nomura, Japan's largest brokerage, and Fulbright Securities Ltd.

Adding China Cosco would ``reflect the trend that an increasing number of large companies tend to be from mainland China,'' said Francis Lun, general manager at Fulbright, a Hong Kong-based brokerage.

Mainland companies that trade in Hong Kong, known as H shares, made up 25 percent of the value traded on the Hong Kong stock exchange's main board at the end of June, up from 1.5 percent at the end of 1997. The city's $2.12 trillion stock market is Asia's third-biggest after Japan and China.

HSI Services Inc., which compiles the benchmark indexes, said in February 2007 that it plans to expand the Hang Seng Index to 50 companies from 43. The changes, based on criteria such as market capitalization and trading volume, may prompt funds that buy shares based on the index to adjust their holdings. HSI Services will announce the changes on Aug. 8.

China Cosco Declines

Shares of China Cosco fell 15 percent this year, less than the 18 percent decline in the Hang Seng Index.

About 31 million of the company's shares traded daily this year, up from 25.8 million in the same period a year earlier. It ranks 59th among all the companies listed on Hong Kong's exchange by average market value, Sandy Lee, a quantitative analyst at Nomura in Hong Kong, wrote in a research note dated July 29.

Yue Yuen slumped 27 percent this year. Castor Pang, an analyst at Sun Hung Kai Securities in Hong Kong, said Yue Yuen may be kept on the Hang Seng index.

``There's no urgency in deleting Yue Yuen, given that the goal is to increase the membership to 50,'' Pang said.

China Railway Construction Corp., based in Beijing, may join the Hang Seng China Enterprises Index, which tracks H shares, while Shenzhen, China-based Guangshen Railway Co. may be removed, according to the Nomura report.

China Railway, builder of more than half the nation's railroads, climbed 14 percent since its March initial offering was priced at HK$10.70 ($1.37) a share. Guangshen Railway, the operator of trains in China's richest province, plunged 31 percent this year.

To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net



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Australia Stocks Preview: Consolidated Media, Origin, Rio Tinto

By Shani Raja

Aug. 4 (Bloomberg) -- The following is a list of companies whose shares may rise or fall in Australia. This preview includes news announced after markets closed on Friday. Prices are from Friday's close unless otherwise stated.

The S&P/ASX 200 Index futures contract due in September fell 0.8 percent to 4,875 at 6:59 a.m. in Sydney. The Bank of New York Australia ADR Index declined 5.3 percent in New York.

The S&P/ASX 200 Index dropped 73.40, or 1.5 percent, to 4,904.

Mining shares: A measure of six metals traded on the London Metal Exchange fell 1.9 percent. Zinc lost 3.3 percent, copper 1.9 percent and nickel 0.3 percent.

American depositary receipts of BHP Billiton Ltd. (BHP AU), the world's largest mining company, slipped 5.9 percent to the equivalent of A$37.77 a share in New York, A$1.34 lower than the A$39.11 close in Sydney.

Rio Tinto Group (RIO AU), the world's third-largest mining company, declined A$3.80, or 3 percent, to A$121.60.

Oil companies: Crude oil rose after Israeli Deputy Prime Minister Shaul Mofaz said all options are open as Iran drives toward a ``major breakthrough'' in its nuclear weapons program. Crude for September delivery rose $1.02, or 0.8 percent, to settle at $125.10 a barrel in New York on Aug. 1.

Woodside Petroleum Ltd. (WPL AU), Australia's second-largest oil and gas producer, dipped A$1.07, or 2 percent, to A$52.73.

National Australia Bank Ltd. (NAB AU): U.S. credit markets deteriorated rapidly last month and may get ``quite a bit worse,'' National Australia Bank Chairman Michael Chaney told the Australian Broadcasting Corp.'s Inside Business Program on August 3. The lender's shares dropped 36 cents, or 1.5 percent, to A$24.34.

Origin Energy Ltd. (ORG AU): Royal Dutch Shell Plc and BP Plc have approached Origin over its coal seam gas assets in Queensland, Australia, the Sunday Telegraph reported, citing unidentified sources. Origin gained 21 cents, or 1.3 percent, to A$16.06.

Consolidated Media Holdings Ltd. (CMJ AU): Seven Network Ltd., the television broadcaster controlled by billionaire Kerry Stokes, has increased its stake in James Packer's Consolidated Media Holdings to 5 percent, the Australian Financial Review reported, without saying where it got the information. Consolidated declined 4 cents, or 1.4 percent, to A$2.90. Seven rose 22 cents, or 3 percent, to A$7.60.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.



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Economic Calendar Eco Data 8/4/08

GMT Ccy Events Actual Consensus Previous Revised 01:30 AUD Australia Hse price index Q/Q Q2 -1.30% 1.10% 01:30 AUD Australia Hse price index Y/Y Q2 8.00% 13.80% 07:30 CHF Swiss SVME PMI Jul 53.3 54.9 08:30 GBP U.K. PMI construction Jul 37.5 38.8 09:00 EUR Eurozone PPI M/M Jun 0.80% 1.20% 09:00 EUR Eurozone PPI Y/Y Jun 7.90% 7.10% 12:30 USD U.S. PCE core M/M Jun 0.20% 0.10% 12:30 USD U.S. PCE core Y/Y Jun 2.20% 2.10% 12:30 USD U.S. PCE index M/M Jun N/A 0.40% 12:30 USD U.S. PCE index Y/Y Jun 3.90% 3.10% 12:30 USD U.S. Personal income Jun -0.20% 1.90% 12:30 USD U.S. Personal spending Jul 0.50% 0.80% 14:00 USD U.S. Factory orders Jun 0.70% 0.60% Canada Market holiday

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Services Probably Shrank for Second Month: U.S. Economy Preview

By Courtney Schlisserman

Aug. 3 (Bloomberg) -- Service industries in the U.S. probably shrank in July for a second straight month, signaling the slowdown in growth broadened, economists said before a report this week.

The Institute for Supply Management's non-manufacturing index, covering almost 90 percent of the economy, rose to 48.8 from 48.2 in June, according to the median forecast of economists surveyed by Bloomberg News. A reading of 50 is the dividing line between contraction and expansion.

Other reports this week may show home sales declined and consumer spending slowed, indicating the real-estate recession and soaring fuel costs are rippling through the economy. Concern over the outlook for both growth and inflation will prompt Federal Reserve policy makers to keep interest rates unchanged at the conclusion of their meeting on Aug. 5.

``There are downside risks to the economy on the housing front, the manufacturing front and household spending,'' said Dana Saporta, an economist at Dresdner Kleinwort in New York. ``The Fed has little choice but to stand pat.''

The Tempe, Arizona-based purchasing managers' group is scheduled to release its services report on Aug. 5. The institute said on Aug. 1 that its manufacturing index dipped to 50 last month from 50.2, signaling factory activity stalled.

Consumers are trimming spending as gasoline prices remain near $4 a gallon, home values fall, credit becomes more difficult to obtain and the job market weakens.

Job Losses

Employers cut 51,000 workers from payrolls in July, the seventh straight decline, and the unemployment rate rose to 5.7 percent, the Labor Department said on Aug. 1. The rate has jumped by 0.7 percentage point since April, the biggest three- month gain since the end of the last U.S. recession in 2001.

``My outlook is cautious -- the consumer clearly is pulling in and is not spending as much,'' Stephen Holmes, Chief Executive Officer at Wyndham Worldwide Corp., said in a July 31 interview. ``We are assuming this will be an issue and a challenge and a headwind for our industry throughout 2009.''

Parsippany, New Jersey-based Wyndham franchises Ramada and Super 8 hotels. U.S. revenue per available room, a measure of rates and occupancy, declined 3.7 percent in the quarter.

A report tomorrow is projected to show consumer spending slowed in June as the boost from tax rebates waned. Purchases increased 0.4 percent after a 0.8 percent rise in May, according to economists surveyed. Incomes probably dropped 0.2 percent as fewer rebate checks reached taxpayers bank accounts.

Less Spending

Economists anticipate spending will continue to weaken in coming months as the housing and labor markets remain depressed.

Pending home resales fell 1 percent in June, the fourth decline in six months, economists project a report from the National Association of Realtors will show on Aug. 7.

The figure is considered a signal of future home sales because it is calculated based on contract signings. The Realtors group said on July 24 that its existing home sales measure, which is recorded at the time a contract closes, fell in June to a 10-year low.

Investors anticipate the Fed will hold its benchmark interest rate at 2 percent in two days as it tries to steer the economy through the slowdown in growth and pickup in prices.

                        Bloomberg Survey

================================================================
                       Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
================================================================
Pers Inc MOM%             8/4       June      1.9%     -0.2%
Pers Spend MOM%           8/4       June      0.8%      0.4%
PCE Deflator YOY%         8/4       June      3.1%      3.7%
Core PCE Prices MOM%      8/4       June      0.1%      0.2%
Core PCE Prices YOY%      8/4       June      2.1%      2.2%
Factory Orders MOM%       8/4       Jan.      0.6%      0.7%
ISM NonManu Index         8/5       July      48.2      48.8
Initial Claims ,000's     8/7      Aug. 3     448       420
Cont. Claims ,000's       8/7      27-Jul     3282      3265
Pending Homes MOM%        8/7       June     -4.7%     -1.0%
Productivity QOQ%         8/8        1Q       2.6%      2.5%
Labor Costs QOQ%          8/8       1Q P      2.2%      1.4%
Whlsale Inv. MOM%         8/8       June      0.8%      0.6%
=============================================================================

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net.

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Economic Calendar Summary 8/3 - 8/8

Sunday, Aug 3, 2008 GMT Ccy Events Consensus Previous 22:45 NZD Average Hourly Earnings (QoQ) (2Q) 1.4% 1.1% 22:45 NZD Private Wages ex Overtime (QoQ) (2Q) 0.8% 0.7% 22:45 NZD Labor Cost Private Sector (QoQ) (2Q) 0.8% 0.7% 23:30 AUD AiG Performance of Service Index (JUL) -- 45.4 23:50 JPY Monetary Base (YoY) (JUL) -- 0.4% Monday, Aug 4, 2008 GMT Ccy Events Consensus Previous 1:30 AUD ANZ Job Advertisements (MoM) (JUL) -- -3.0% 1:30 AUD House Price Index (QoQ) (2Q) -1.3% 1.1% 1:30 AUD House Price Index (YoY) (2Q) 8.0% 13.8% 3:00 NZD ANZ Commodity Price (JUL) -- 0.0% 7:30 CHF SVME-Purchasing Managers Index (JUL) 53.6 54.9 8:30 GBP Purchasing Manager Index Construction (JUL) 37.5 38.8 8:30 EUR Euro-Zone Sentix Investor Confidence (AUG) -10 -9.3 9:00 EUR Euro-Zone Producer Price Index (MoM) (JUN) 0.8% 1.2% 9:00 EUR Euro-Zone Producer Price Index (YoY) (JUN) 7.9% 7.1% 11:30 USD Challenger Job Cuts (YoY) (JUL) -- 46.7% 12:30 USD Personal Income (JUN) -0.2% 1.9% 12:30 USD Personal Spending (JUN) 0.5% 0.8% 12:30 USD Personal Consumption Expenditure Core (MoM) (JUN) 0.2% 0.1% 12:30 USD Personal Consumption Expenditure Core (YoY) (JUN) 2.2% 2.1% 12:30 USD Personal Consumption Expenditure Deflator (YoY) (JUN) -- 3.1% 14:00 USD Factory Orders (JUN) 0.7% 0.6% Tuesday, Aug 5, 2008 GMT Ccy Events Consensus Previous 4:30 AUD Reserve Bank of Australia Rate Decision 7.25% 7.25% 7:45 EUR Italian Purchasing Manager Index Services (JUL) 47.3 48.5 7:50 EUR French Purchasing Manager Index Services (JUL F) 47 47 7:55 EUR German Purchasing Manager Index Services (JUL F) 53.3 53.3 8:00 EUR Euro-Zone Purchasing Manager Index Services (JUL F) 48.3 48.3 8:00 EUR Euro-Zone Purchasing Manager Index Composite (JUL F) 47.8 47.8 8:30 GBP Purchasing Manager Index Services (JUL) 46.6 47.1 8:30 GBP Industrial Production (MoM) (JUN) 0.1% -0.8% 8:30 GBP Industrial Production (YoY) (JUN) -1.2% -1.6% 8:30 GBP Manufacturing Production (MoM) (JUN) 0.1% -0.5% 8:30 GBP Manufacturing Production (YoY) (JUN) -0.6% -0.8% 8:30 GBP Official Reserves (Changes) (JUL) -- $462M 9:00 EUR Euro-Zone Retail Sales (MoM) (JUL) -0.6% 1.2% 9:00 EUR Euro-Zone Retail Sales (YoY) (JUN) -1.3% 0.2% 14:00 USD ISM Non-Manufacturing Composite (JUL) 48.0 48.2 18:15 USD Federal Open Market Committee Rate Decision 2.00% 2.00% 23:01 GBP NIESR Gross Domestic Product Estimate (JUL) -- 0.2% 23:01 GBP Nationwide Consumer Confidence (JUL) 57 61 23:30 AUD AiG Performance of Construction Index (JUL) -- 40.3 Wednesday, Aug 6, 2008 GMT Ccy Events Consensus Previous 1:30 AUD Home Loans (JUN) -2.0% -7.9% 1:30 AUD Investment Lending (JUN) -- -- 1:30 AUD Value of Loans (MoM) (JUN) -- -- 5:00 JPY Leading Index (JUN P) 91.1% 92.9% 5:00 JPY Coincident Index (JUN P) 101.7% 103.3% 9:30 GBP BRC Shop Price Index (JUL) -- -- 10:00 EUR German Factory Orders s.a. (MoM) (JUN) 0.4% -0.9% 10:00 EUR German Factory Orders n.s.a. (YoY) (JUN) -4.7% -2.0% 11:00 USD MBA Mortgage Applications (AUG 1) -- -- 14:00 CAD Ivey Purchasing Managers Index (JUL) 62.5 69.6 22:45 NZD Unemployment Rate (2Q) 3.8% 3.6% 22:45 NZD Employment Change (QoQ) (2Q) 0.2% -1.3% 22:45 NZD Employment Change (YoY) (2Q) -0.6% -0.2% 23:50 JPY Machine Orders (MoM) (JUN) -9.5% 10.4% 23:50 JPY Machine Orders (YoY) (JUN) -- -- 23:50 JPY Foreign Buying Japan Stocks (Yen) (AUG 1) -- -- 23:50 JPY Foreign Buying Japan Bonds (Yen) (AUG 1) -- -- 23:50 JPY Japan Buying Foreign Stocks (Yen) (AUG 1) -- -- 23:50 JPY Japan Buying Foreign Bonds (Yen) (AUG 1) -- -- Thursday, Aug 7, 2008 GMT Ccy Events Consensus Previous 1:30 AUD Employment Change (JUL) 5.0K 29.8K 1:30 AUD Unemployment Rate (JUL) 4.3% 4.2% 1:30 AUD Participation Rate (JUL) 65.3% 65.3% 6:00 EUR German Trade Balance (euros) (JUN) 15.5B 14.4B 6:00 EUR German Current Account (euros) (JUN) 12.0B 7.5B 6:00 EUR German Imports s.a. (MoM) (JUN) 1.8% 0.5% 6:00 EUR German Exports s.a. (MoM) (JUN) 1.8% -3.4% 6:45 EUR French Trade Balance (euros) (JUN) -4.6B -4.7B 8:00 EUR Italian Industrial Production s.a. (MoM) (JUN) 0.3% -1.4% 8:00 EUR Italian Industrial Production w.d.a. (YoY) (JUN) -2.0% -4.1% 8:00 EUR Italian Industrial Production n.s.a. (YoY) (JUN) -4.5% -6.6% 10:00 EUR German Industrial Production s.a. (MoM) (JUN) 0.8% -2.4% 10:00 EUR German Industrial Production n.s.a. and w.d.a. (YoY) (JUN) 1.5% 0.8% 11:00 GBP Bank of England Rate Decision 5.00% 5.00% 11:45 EUR European Central Bank Rate Decision 4.25% 4.25% 12:30 EUR ECB President Trichet Holds Public Press Conference -- -- 12:30 CAD Building Permits (MoM) (JUN) -1.0% 1.1% 12:30 USD Initial Jobless Claims (AUG 2) 413K 448K 12:30 USD Continuing Claims (JUL 26) -- -- 14:00 USD Pending Home Sales (MoM) (JUN) -1.0% -4.7% 17:30 USD ICSC Chain Store Sales (YoY) (JUL) -- -- 19:00 USD Consumer Credit (JUN) $6.4B $7.8B 23:50 JPY Loans Individual Hedgefund (YoY) (2Q) -- 3.7% 23:50 JPY Japan Money Stock M2+CD (YoY) (JUL) 2.4% 2.3% 23:50 JPY Japan Money Stock M3 (YoY) (JUL) 1.0% 0.9% 23:50 JPY Bank Lending incl Trusts(YoY) (JUL) -- 1.8% 23:50 JPY Bank Lending Banks ex-Trust (YoY) (JUL) -- 2.0% 23:50 JPY Bank Lending Banks Adjust (YoY) (JUL) -- 2.4% Friday, Aug 8, 2008 GMT Ccy Events Consensus Previous -- JPY Eco Watchers Survey: Outlook (JUL) -- 32.1 -- JPY Eco Watchers Survey: Current (JUL) -- 29.5 5:45 CHF Unemployment Rate (JUL) 2.3% 2.3% 5:45 CHF Unemployment Rate s.a. (JUL) 2.5% 2.5% 6:30 AUD Foreign Reserves (Australian dollar) (JUL) -- 35.9B 6:45 EUR French Central Government Balance (euros) (JUN) -- -50.1B 8:00 EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ) (2Q P) 0.0% 0.5% 8:00 EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY) (2Q P) 0.3% 0.3% 9:00 EUR Euro-Zone Industrial Confidence (AUG) -- -- 11:00 CAD Net Change in Employment (JUL) 5.0K -5.0K 11:00 CAD Unemployment Rate (JUL) 6.2% 6.2% 12:30 USD Nonfarm Productivity (2Q P) 2.6% 2.6% 12:30 USD Unit Labor Costs (2Q P) 1.2% 2.2% 14:00 USD Wholesale Inventories (JUN) 0.6% 0.8%

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Treasuries Post Biggest Gain Since June as U.S. Economy Slows

By Daniel Kruger

Aug. 2 (Bloomberg) -- Treasuries posted the biggest weekly gains since June as government reports showed the economy slowing and employment falling, adding to expectations that the Federal Reserve won't raise interest rates this year.

The difference in yields between two- and 10-year notes, known as the yield curve, increased 5 basis points to 1.44 percentage points, indicating investors are concerned that the central bank may not be able to contain inflation even as the economy slows. Futures indicate there's a 93 percent probability that policy makers will leave borrowing costs unchanged when they meet next week.

``Given all the other stresses out there, there's not much of a case for the Fed to hike,'' said Carl Lantz, an interest- rate strategist in New York at Credit Suisse Securities USA LLC, one of 19 primary dealers that trade with the Fed. ``At the same time, it's hard to cut until we get more clarity on the direction of inflation.''

Two-year note yields fell 22 basis points, the most since the week ended June 27, to 2.49 percent. The price of the 2.75 percent security due in July 2010 rose 13/32 for the week, or $4.06 per $1,000 face amount, to 100 1/2, according to BGCantor Market Data.

Yields on the 10-year Treasury note declined 17 basis points, also the most since the week ended June 27, to 3.93 percent. A basis point is 0.01 percentage point.

Payrolls shrank by 51,000 jobs in July, the Labor Department said yesterday. While the decline was less than the 75,000 forecast in a Bloomberg News survey of economists, it was the seventh consecutive monthly drop. The unemployment rate rose last month to 5.7 percent, the highest since March 2004.

Possible Recession

``The report was consistent with a deteriorating labor market and a weak fundamental economy,'' said Stuart Spodek, co- head of U.S. bonds in New York at BlackRock Advisors Inc., which manages $527 billion in debt.

A Commerce Department report on July 31 showed economic growth slowed more than forecast, and revisions to earlier reports suggested the economy may have slipped into recession during the last three months of 2007.

Gross domestic product grew at an annualized rate of 1.9 percent in the second quarter. The median forecast in a Bloomberg survey of economists was 2.3 percent. The report's annual revisions lowered the growth rate back to 2005 and showed GDP contracted 0.2 percent in the last three months of 2007.

The Labor Department also said on July 31 that jobless claims hit a five-year high last week.

`Really Tight Spot'

``The Fed is in a really tight spot,'' said Richard Schlanger, a portfolio manager at Pioneer Investments in Boston, which oversees $44 billion in fixed income. Weakness in the economy ``is so apparent, and yet they've already provided so much accommodation to bolster the weak financial system.''

Futures contracts on the Chicago Board of Trade yesterday showed a 37 percent chance the Fed will leave its benchmark rate for overnight loans between banks steady at its December meeting, compared with 12 percent a month earlier. The odds of an increase at its meeting Aug. 5 are 7 percent.

Interest-rate increases are very unlikely, as the central bank has ``clearly given us the signal they're worried about the financial system,'' said George Goncalves, chief Treasury and agency strategist with Morgan Stanley in New York, another primary dealer.

The central bank lowered its target rate for overnight lending between banks by 3.5 percentage points, to 2 percent, in a series of seven cuts that began in September.

`Fragile Circumstances'

It also extended two emergency lending programs to Wall Street firms until Jan. 30 ``in light of continued fragile circumstances in financial markets,'' it said on July 30. The Primary Dealer Credit Facility provides direct loans to securities firms and the Term Securities Lending Facility loans Treasuries. Both aim to boost liquidity in the financial system.

Financial firms worldwide have lost or written down $480 billion in connection with the credit crisis that began with rising delinquencies in subprime mortgages last year, data compiled by Bloomberg show.

The Treasury plans to auction $17 billion in 10-year notes Aug. 6 and $10 billion in 29 3/4-year bonds Aug. 7. The total is higher than analysts forecast and exceeds the $21 billion in notes and bonds sold in May. The government also is considering boosting the frequency of debt sales, it said this week.

The U.S. budget deficit will increase to a record $482 million next year, the Bush administration said on July 28.

`Bit of a Lid'

``We have to deal with the refunding this month, and that may put a bit of a lid'' on price gains, said Donald Ellenberger, who oversees about $6 billion as co-head of government and mortgage-backed securities at Federated Investors in Pittsburgh.

Treasuries have returned 2.6 percent so far this year after gaining 9.1 percent last year, according to Merrill Lynch & Co.'s Treasury Master Index.

Regular government debt outpaced Treasury Inflation Protected Securities, or TIPS, this week. Ten-year TIPS yielded 2.30 percentage points less than similar-maturity notes, near the narrowest since April 30, when the difference was 2.28 percent. The gap, known as the breakeven rate, indicates the inflation rate traders expect over the next decade.

U.S. consumer prices surged 5 percent in the past year, the biggest jump since 1991, the government said July 16. Some policy makers said at the Fed's June 25 meeting that a rate increase ``would be appropriate very soon,'' meeting minutes show.

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

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Weekly Review and Outlook Dollar Building Up Medium Term Strength, Aussie Tumbled Further

Market Overview | Written by ActionForex.com | Aug 02 08 18:01 GMT |

Top 5 Current Last Change (Pips) Change (%) AUDJPY 100.03 103.12 -309 -3.09% AUDUSD 0.9290 0.9559 -269 -2.90% NZDJPY 78.29 80.00 -171 -2.18% AUDCAD 0.9540 0.9748 -208 -2.18% NZDUSD 0.7271 0.7417 -146 -2.01% Dollar EURUSD 1.5562 1.5710 -148 -0.95% USDJPY 107.68 107.85 -17 -0.16% GBPUSD 1.9750 1.9913 -163 -0.83% USDCHF 1.0496 1.0361 +135 +1.29% USDCAD 1.0268 1.0194 +74 +0.72% Euro EURUSD 1.5562 1.5710 -148 -0.95% EURGBP 0.7878 0.7887 -9 -0.11% EURCHF 1.6335 1.6278 +57 +0.35% EURJPY 167.57 169.44 -187 -1.12% EURCAD 1.5983 1.6016 -33 -0.21% Yen USDJPY 107.68 107.85 -17 -0.16% EURJPY 167.57 169.44 -187 -1.12% GBPJPY 212.67 214.82 -215 -1.01% AUDJPY 100.03 103.12 -309 -3.09% NZDJPY 78.29 80.00 -171 -2.18% Sterling GBPUSD 1.9750 1.9913 -163 -0.83% EURGBP 0.7878 0.7887 -9 -0.11% GBPCHF 2.0730 2.0634 +96 +0.46% GBPJPY 212.67 214.82 -215 -1.01% GBPCAD 2.0285 2.0305 -20 -0.10% A couple of important developments were seen in the forex markets last week, including broad based rally in dollar, rebound in yen as well as the sharp deterioration in sentiments towards the Australian dollar. Dollar was supported by further decline in commodity prices as well as the view that economic slowdown in other major economies of the world could be deeper than markets originally expected. Technically speaking, the fall in EUR/USD and AUD/USD took out some important near term support levels, indicating that both pairs have already topped out at least in near term. The development aligned the generally dollar bullish outlook with other dollar majors including USD/CHF, USD/JPY and USD/CAD. The case of more medium term rebound in the greenback has become more solid. The Japanese yen rebounded broadly last week, with support from massive reduction in carry trades in commodity yen crosses including AUD/JPY and NZD/JPY. Note that all of USD/JPY, EUR/JPY and GBP/JPY gave up more gains ahead of key medium term resistance levels, 108.58 in USD/JPY, 170 in EUR/JPY and 216.14 in GBP/JPY. While a short term top is in place in EUR/JPY, USD/JPY and GBP/JPY, there is no indicate of reversal in these crosses yet. The development in the coming weeks, in particular in commodity yen crosses, will be important to determine whether these yen crosses have topped out in medium term. Sentiments towards the Australian dollar continued to deteriorate last week. Aussie took Kiwi's place as the biggest mover last week with AUD/JPY and AUD/USD falling around 3%. The surprised drop in retail sales and weakness in manufacturing data prompted speculations that RBA has overdone it's tightening to fight inflation and prior rate hikes are starting to drag down the economy, in much quicker way then RBA thought. According to Credit Suisse Group index based on interest-rate swaps, traders are betting that RBA will lower interest rates by 75bps in the next 12 months. Technical development in AUD/USD and AUD/JPY were also important. AUD/USD has taken out a medium term trend line support and completed a medium term rising wedge formation. AUD/JPY has taken out 100.21 key structural support and dipped briefly below 100 level with daily MACD now turned negative. Both are pointing to the case that at least a medium term top is in place. The Aussie is expected to remain under pressure. Central bank meetings will take center stage this week. While the all of Fed, ECB, BoE and RBA are expected to be on hold, it's the message that these central banks deliver that's important, in particular in this period of a possible major turn around in the markets. Markets will continue to scrutinize every word from the Fed on the hints on when Fed will remove prior policy easing to fight inflation. ECB Trichet will be carefully listened to on comments on the slowdown in the economy in Eurozone. Meanwhile, RBA will be watched for any evidence that RBA would think it overshoot it's policy tightening cycle. Currency Heat Map Weekly View USD EUR JPY GBP CHF CAD AUD USD EUR JPY GBP On the data front, US Q2 GDP missed expectation and grew at 1.9% annualized rate. GDP price index rose much less than expected at 1.1%. Personal consumption grew 1.5% while PCE core was also below expecting, growing 2.1%. Q1 GDP growth was revised down from 1.0% to 0.9% and more importantly, Q4 growth was revised downward to -0.2% contraction, first negative reading since Sep 2001. Non-farm payroll report showed -51k contraction in Jul, better than expectation of -75k. Prior month's NFP number was also revised up from -62k to -51k. Though, note that this was still the seven consecutive number of negative reading in NFP. Also, unemployment rate climbed more than expected from 5.5% to 5.7%, hitting a 4 year high. Jobless claims surged sharply to 448k. Conference Board Consumer Confidence unexpectedly improved to 51.9 in Jul ISM manufacturing index dropped less than expected from 50.2 to 50.0 in Jul. Chicago PMI was back above 50 at 50.8 in Jul, beating expectation of 49.0. S&P/CaseShiller Composite-20 showed -15.8% yoy drop in May, down from prior -15.3% but was above expectation of -16.0%. Construction spending dropped more than expected by -0.4% in Jun. Data showed sharp deterioration in Eurozone sentiments. Business climate dropped sharply to -0.21 in Jul. Economic sentiment dropped to 89.5. Consumer confidence deteriorated to -20. All are below markets' consensus expectation. Unemployment rate climbed from 7.2% to 7.3% in Jun. Eurozone Manufacturing PMI was revised slightly lower to 47.5. in Jul. Eurozone Jul HICP flash showed inflation climbed to 16 years high of 4.1% yoy. Germany retail sales showed -1.4% mom, -3.9% yoy fall in Jun, much worse than expectation of -0.5% mom, -0.8% yoy. Gfk consumer confidence dropped to five year low of 2.1 UK CBI's industrial trades survey showed that 61% of respondents to the Distributive Trades Survey reported that sales in first half of July were lower than a year ago. Only 25% said sales had increased. That left the balance to -36%, which is the weakest record since the study started 25 years ago. Gfk consumer confidence dropping to record low of -39 in Jul. UK manufacturing PMI fell to nearly 10 years low of 44.3 in Jul, below expectation of 45.5. Nationwide house priced dropped more than expected by -1.7% mom, -8.1% yoy in Jul. Mortgage approvals dropped to 36k in May, which was also the lest level since at least 1999. Swiss KOF leading indicators came in below expectation at 0.9 in Jul. CPI came in stronger than expected at 3.1% yoy in Jul. Japanese unemployment rate unexpectedly climbed from 4.0% to 4.1% in Jun. Household spending dropped -1.8% yoy in Jun, better than expectation of -2.8%. Retail sales dropped -0.5% mom, -0.2% yoy. Industrial production dropped -2.0% mom, -0.2% yoy in Jun. Manufacturing PMI improved from 46.5 in Jul, housing started dropped -16.7% yoy in Jun with construction orders dropped -11.7%. Australia trade balance unexpectedly showed 411M surplus in Jul. Retail sales missed expectation and dropped -1.0% mom in Jul. Canadian GDP unexpectedly contracted by -0.1% mom in May. PPI climbed 1.3% mom in Jul vs consensus of 1.0%. New Zealand trade deficit widened less than expected to -233M in Jun. Suggested Readings: FX Briefing - Eurozone: Economy Down, Euro Down This Week's Market Outlook Weekly Economic and Financial Commentary Weekly Focus: Commodity Correction The Weekly Bottom Line The Week Ahead Rebounding dollar, weakness in Australian dollar and possible topping in yen crosses will remain the main focus in the markets this week. In particular, markets will pay close attention to the four major central banks meetings, Fed, ECB, BoE and RBA. All are expected to be on hold. FOMC statement will be important in determining when Fed will start removing prior policy easing to fight inflation. Odds of a Fed hike by year end has dropped to around 60% recently but such expectation could change if Fed sounds more confident on growth and alerted on inflation. Trichet's post ECB conference will also be catch all attention. The picture is Euro is a bit tricky with inflation hitting a 16 year high but sharply deteriorating sentiments and growth prospect. Opinions are divided on what the next move from ECB will be with mild speculation of the possibility of a hike. That's keeping Euro relatively firmer among the major currencies. However, should Trichet sound firstly, more concerned on slowdown in the Eurozone economy, or, secondly, firm on keeping interest rates unchanged at the current level, the common currency could follow other majors and be sold off against dollar and yen. Risk of the Aussie is clearly on the downside ahead of RBA meeting. And if RBA sounds concerned on slowdown in the economy, or, like what RBNZ did, signal the possibility of a rate cut, there will likely be another round of massive selloff. In addition to the central bank meetings, a number of important economic data from around the world will be released this week. From US, main focus will be on Jun Personal income and spending reports, ISM services. Factory orders, pending home sales,wholesales inventories and Q1 productivity will also be released. Eurozone PMI services is expected to dive deeper into contraction region. Retail sales, PPI, germany factory orders will be featured. UK PMI services is expected to deteriorate further in Jul in contraction region. Industrial and manufacturing production, nationwide consumer confidence, will be released. Australian house price index is expected to show a decline of -1.3% qoq in Q2. Job report is expected to show unemployment rate climbing to 4.3$ in Jul. Both could add more pressure to the Aussie. New Zealand job report and Canadian employment report will also catch much attention. Suggested Readings: Economic Calendar Summary 8/3 - 8/8 Economic Outlook: The Fed's Dilemma Week Ahead In US Financial Markets (August 4-August 8 2008) Expectations of FOMC Meeting at the Fed Australian & New Zealand Weekly: We Have Brought Forward the First Rate Cut by the RBA to Q1 2009 DailyFX Forecasts - We Expect the New Zealand Dollar to Fall Further New Zealand Dollar Bears in Control The Week Ahead Canada & U.S.: FOMC Rate Decision, Canadian Employment The Week Ahead Europe & UK: ECB and BOE Interest Rate Decisions The Week Ahead Japan & Australia: RBA Cash Target, Australian Unemployment AUD/USD Weekly Outlook AUD/USD's decline from 0.9849 extended sharply further to as low as 0.9285 last week While AUD/USD is deeply oversold, there is no indication of an intraday low yet. Intraday bias remains on the downside initially this week as long as 0.9381 minor resistance holds and further fall could be seen to 38.2% retracement of 0.7675 to 0.9849 at 0.9019. Above 0.9381 will indicate that an intraday low is in place and bring recovery towards 0.9477 resistance. But upside should be limited by 0.9596 resistance and bring fall resumption. In the bigger picture, important development last week as AUD/USD took out medium term trend line support and 0.9327 support successively. As mentioned before, AUD/USD has possibly completed a diagonal triangle pattern that started at 0.7675, with 0.9849 as a false break. This is supported by bearish divergence conditions in daily MACD and RSI. While some support might be seen initially at 0.9019 fibo support, deeper medium term decline is now expected to 0.7675 and 0.8870 support zone, with 0.8008 key medium term support in between. On the upside, above 0.9596 is needed to indicate fall from 0.9849 has completed. Otherwise, short term risk remains on the downside even in case of recovery. In the longer term picture, it's still early to conclude that long term up trend from 0.4773 (01 low) has completed after failing to reach 100% projection of 0.4773 to 0.8008 from 0.6773 at 1.0008 which overlaps with parity. However, bearish divergence condition in monthly RSI is serving as an indication that and important top is in place. Focus on the next few months will be on the current decline from 0.9849 will drag monthly MACD below signal line and cause bearish divergence there.

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Global Economies Recouple

Daily Forex Fundamentals | Written by The LFB-Forex.com | Aug 02 08 18:25 GMT |

Overall: It's become apparent that a fairly widespread global slowdown will occur as the world's economies recouple, with recessionary risks seen for the U.S., U.K., Canada, Japan, Italy, Spain, Ireland, Portugal and New Zealand along with sharp growth deceleration for France and Germany. And with the advanced economies slowing or entering recessions the idea that China, India and other emerging markets can remain immune from these recessionary or sharply slowing economies is probably not realistic. Twenty two ut of the 23 components of the global MSCI equity index are already into bear territory (with a fall of 20% or worse) with the only exception being Canada, which probably will also fall into the same condition soon enough. The myth of economic de-coupling can now be laid to rest as the economic story for H2 2008 into at least H1 2009 will be global recoupling to the U.S. slowdown. The euro fell 40 pips overnight after a bigger than expected drop in German retail sales, which fell 1.4% in June and 3.9% (in real terms) from June 2007. Traders may look to stay short on the euro as long as it continues to close below the July 7 low on 1.5611. Should the pair decline further, the next level of support is seen on 1.5460, a break of which could see a test at the channel low on 1.5290. Oil seems destined to decline on speculation that demand will wane, but any hint of geo-political turmoil is sure to cause its price to spike up on the risk to supply. The pound continued its decline from the break of channel support on July 29. There was more bad news for the British economy, which now seems destined to enter a recession--The CIPS index of manufacturing dropped to 44.3, the lowest since December 1998 while the prices for goods charged by factories rose to 63.1, the highest since that series started in November 1999. A gauge of input prices increased to 82.4, the most since records started in 1992. The BoE still may raise interest rates (as suggested by the NIESR)--Timothy Besley, one of the Bank of England's nine rate setters, said in an interview with the Daily Telegraph this week that "more activism in policy now means one can afford to be less active later." The aussie fell for the eighth time in ten days, falling below the important support level on .9325 as gold and other commodities fell on Friday. The idea of parity, once seen as all but certain, now seems like a distant memory as a daily close looks to open the way to a test of .9000 on speculation that slowing economic growth will prompt the RBA to cut interest rates. The cad continued to rise Friday after Thursday's GDP report showed that Canada's economy contracted for the third month in four in May. A break and close above the highs of April 1 and June 10 likely opens the way higher as traders start to price in a rate cut from the bank of Canada. The swissy continued to rise even as U.S. equity markets declined on Friday, making its highest close since May 29. The Swiss PMI for July will be released Monday at 03:30 EDT. The jpy declined as the S&P lost nearly 0.5% on the day, but the suspicion is that the Japanese Central Bank will come under corporate pressure to allow the yen to depreciate after a report on car sales showed that Toyota's July sales in the U.S. declined 12%. The LFB-Forex.com

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Japan's Bonds Complete Weekly Gain as Stocks Slump on Slowdown

By Theresa Barraclough

Aug. 2 (Bloomberg) -- Japan's 10-year bonds completed a weekly gain as local stocks slumped following a U.S. report that showed the world's biggest economy grew less than economists expected last quarter.

Benchmark yields fell to a three-month low yesterday as the Nikkei 225 Stock Average declined the most in three weeks, luring investors to the relative safety of debt. Bonds also advanced as Japanese government reports this week showed wages fell, unemployment climbed to the highest in almost two years and industrial output declined.

``The market is focusing on the downside risks to the economy and the uncertainty in the financial system,'' said Koji Shimamoto, chief strategist at BNP Paribas Securities Japan Ltd. in Tokyo and the top-rated debt analyst in Japan according to Nikkei Veritas newspaper. ``The Bank of Japan has been making a point of industrial production, which suggests the Japanese economy is already in a recession.''

The yield on the 1.7 percent bond due June 2018 fell 6 basis points this week to 1.51 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.520 yen to 101.632 yen. The yield dropped 2 basis points, or 0.02 percentage point, and touched 1.505 percent yesterday, the lowest since April 24.

Ten-year bond futures for September delivery rose 0.78 this week to 136.72 on the Tokyo Stock Exchange and the Nikkei 225 Stock Average fell 1.8 percent.

Japanese bond yields often move in the same direction as stocks. Benchmark 10-year yields had a correlation of 0.80 with the Nikkei 225 in the past two weeks, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep.

Slower Growth

The U.S. economy grew at a 1.9 percent annualized rate in the three months to June 30, the Commerce Department said in Washington on July 31, less than the median projection of 2.3 percent in a Bloomberg News survey.

The Japanese economy may have contracted last quarter 1.6 percent from a year earlier, Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp., wrote yesterday in a research note. The government will release the data Aug. 13.

Given ``the negative impact of higher energy and food prices on real income and spending, there should be room for modest declines in JGB yields,'' Tokyo-based Fujii wrote.

Benchmark bonds completed a monthly gain on July 31 after the Labor Ministry said monthly wages dropped for the first time this year in June, declining 0.6 percent from a year earlier.

Industrial Output

Factory output contracted 0.8 percent in the three months ended June 30, the first back-to-back decline since 2001, the Trade Ministry said July 30. The jobless rate unexpectedly climbed to 4.1 percent in June, from 4 percent in May, the statistics bureau said July 29.

Gains in government securities were limited this week on speculation inflation will keep accelerating, eroding the value of the fixed payments from debt.

Food and fuel prices are rising faster than wages, squeezing household budgets and causing consumer sentiment to drop to the lowest level in at least 26 years last month. Core consumer prices climbed 1.9 percent in June, the most in a decade, the government said last week.

``Inflation will remain a sub-theme,'' weighing on bonds, said Naka Matsuzawa, chief strategist at Nomura Securities Co. in Tokyo. ``Once the economic outlook settles, then the focus will turn back to inflation.''

Breakeven Rates

The extra yield paid by 10-year conventional government debt compared with similar-dated inflation-linked bonds fell to 26 basis points yesterday from 39 basis points two weeks ago, according to Bloomberg data. The so-called breakeven inflation rate reflects investor expectations for average annual increases in the consumer price index over the next decade.

The Ministry of Finance will sell 500 billion yen ($4.65 billion) in 10-year inflation-linked bonds on Aug. 7.

Five-year yields fell to the lowest in two weeks yesterday as the odds the Bank of Japan will raise interest rates this year dropped to 8 percent, interest-rate swaps show. The five-year yield slid 6.5 basis points this week to 1.075 percent.

The probability the central bank will increase its target rate to 0.75 percent, from 0.5 percent, was 10 percent on July 31, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps. That's down from as high as 92 percent on June 11.

Investors should buy Japan's shorter-dated notes and sell longer-maturity bonds, BNP's Shimamoto said.

The difference in yield between two-year and 10-year debt was 75 basis points yesterday, compared with 81 basis points two weeks ago, according to data compiled by Bloomberg. The gap is likely to widen to 84 basis points by the end of September, according to a Bloomberg News survey of economists and analysts.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.



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